Wednesday, March 11, 2009

Memo to Jim Flaherty

When you want to know what's going on, drop by.

OCT. 30, 2007

Now, what happens if, as I expect, we do have a recession next year? Flaherty's tax cuts are now built into the system. They are, essentially, refunds from the windfall the government has been blessed with in a time of incredible prosperity. But if the economy tanks with the US', we'll be running Mulroney-type deficits again as quick as you can say "Michael Wilson".

SEPT 22, 2008
Let's see the cash first
I've been following the credit meltdown for well over a year, and it's played out the way I expected. Today is sickening. Thank God so few people know any history or have any idea where this thing is going.
It's particularly strange to teach university students who don't have any recollection of recessions. Most of the weren't even born during the recession of the early 1980s.
This one is going to be far worse. The 1980s recession was a contraction of manufacturing. This is a total vapor-lock of credit. This hasn't happened since 1929 and we haven't seen bank failures like this since the winter of 1932-1933, when, at least, a bank relief bill made it through Congress with bi-partisan support. I can't imagine what would have happened in 1933 without the Reconstruction Finance Corp. and the federal re-organization of banking. Unless Congress acts, I fear we will find out.
As for Canada, we're doing exactly what we did in 1929: pretend the downturn will be kept to the States. In early 1930, the Toronto Star sent Parliamentary reporter Wilfrid Eggleston across the States to write about the lousy conditions down there and, by comparison, praise William Lyon Mackenzie King's policies. That didn't save King in the 1930 election campaign. And by the end of 1930, we were worse off than the Americans (but our banks did survive the storm of 1932-1933, when banks collapsed across the States, money disappeared from circulation in America, and people resorted to barter and municipal scrip until a deal was reached between the outgoing Hoover administration, the incoming Roosevelt team, Congress and the banks.
As I said above, today's politicians don't have it in them to work for the betterment of the economy. And, if anything, this collapse is worse. The 1932 collapse began when individual savers pulled their funds from regional banks. It was solved by getting cash to those banks so people would have faith in them and return their savings). Our exports were killed by American tariffs, cheap Soviet wheat came on the market, and pay cuts ruined the purchasing power of those who had jobs.
There's a myth that the war ended the Depression, when, in fact, the economy grew fairly steadily from 1934 until 1939. Without the war, the economy probably would have recovered by the early to mid 1940s, and much faster if there had been a concerted effort to end trade barriers.
Now, banks are not only afraid to lend to businesses and individuals, they're afraid to lend to each other for fear they will lose their money. Quite simply, trade and investment cannot function without this credit.
If you want to know what I think of this mess, read through the blog. It's all here, beginning last August. What's the way out? Well, a lot of people are going to offer a lot of ideas over the next few years. Some of them will be pretty scary as people look for easy answers.
First, we'll have to absorb and work off the losses. A lot of people are going to end up as debt slaves, since American bankruptcy laws were changed by the Bush administration to prevent the types of walk-aways that we have in Canada. House prices are going to have to drop to a level in which it makes sense for the average family to buy.
They way out involves a shift in how we do business and politics. It involves investment in real productivity, not in paper assets. It also involves seeing business differently, especially in the way quarterly results are so over-emphasized. That, much more than anything, has resulted in the drying up of real physical investment.
Many companies will need to be de-leveraged. Eventually, this will be good for the media as it emerges from the debt heaped upon it by the various buy-outs and asset sales of the last twenty years.
But the only real way out is to invest in communities, especially in manufacturing. Quite simply, we don't make anything. We don't process our natural resources. We've become a nation of hole diggers and paper-pushers. We don't even hew wood anymore.
It's the same in the States.

But I am too whacked from watching the day unfold (and lecturing for two hours) to deal with this.

So, instead, I'll mock this guy. I don't think he has more than 4 trillion pounds at his disposal. As for proving evolution, it's fairly easy, to anyone with an open mind.
In fact, it's easy as hell to disprove Noah's Flood as the cause of the deposition of continental sedimentary rocks, but that isn't the bet.

HT to Norman Spector for the link.


Anonymous said...

The Tories want you to believe that the way out of this economic mess is a little road construction and $3 billion slush fund rather than a radical departure in our economic approach that Mark proposes - de-leveraging, building confidence in our financial institutions, and hell, just building things again through our manufacturing sector....

Ottawa Watch said...

Yes, this is going to be a long recession because the process of de-leveraging, establishing solid prices and value, and reviving real as opposed to speculative, economic activity has barely begun.

Anonymous said...

Two other considerations we should ponder:

i) Actually diversifying our trading arrangements. Yes, the US will always be our largest trading partner, but can't we increase our exports to the 700-million strong Eurozone or 1.3 billion strong China?

ii) Shouldn't we rethink education. Obviously the post-knowledge/post-industrial economy idea is failing. Salaries in pure science and IT are declining, especially due to cheap labour pressures from Asia. Maybe more tradespeople than lawyers are needed?

Ottawa Watch said...

Yup. And most of our top skilled tradespeople are on the verge of retiring.
Automobile manufacturing is a huge industry in Canada, but apparently ont one Canadian university has a program in automotive engineering.